(Toronto) Scotiabank saw its third-quarter profits fall from a year ago as it increased provisions for bad debts, even as the bank said it is seeing some easing in financial stress among Canadian consumers.
The bank said Tuesday it set aside $1.05 billion for bad loans during the quarter, a big jump from $819 million a year earlier and up slightly from $1.01 billion the previous quarter.
The amount of impaired loans, those for which the bank has no reasonable expectation of full repayment, actually fell for Canadian banks in the third quarter compared to the second, from $399 million to $338 million.
“I continue to be impressed by the resilience of the Canadian consumer during this time, by the compromises they continue to make,” said Phil Thomas, Chief Risk Officer at Scotiabank.
The trend is clearly evident in variable-rate mortgages, he said, which have also started to benefit from the Bank of Canada’s rate cuts.
Scotia is also seeing a stabilization in its auto lending, an area it has reported has been under stress for about a year, Thomas said.
“I was really encouraged this quarter to see that we are finally stable in terms of net write-offs in this portfolio,” he said. “One quarter is not a trend, but I am encouraged by what I see this quarter. And even as I look to the next quarter, I see stability in these portfolios going forward.”
Scotiabank has a much smaller credit card portfolio than some other Canadian banks, but its unsecured line of credit trend no longer appears to be worsening, Thomas said.
Although stabilizing, higher loan loss provisions weighed on earnings, which came to $1.91 billion, or $1.41 per share, for the quarter ended July 31, compared with earnings of $2.19 billion, or $1.70 per share, a year ago.
On an adjusted basis, Scotiabank said it earned $1.63 per diluted share, down from adjusted earnings of $1.72 per diluted share in the same quarter last year.
Analysts on average had expected Scotia to report adjusted earnings of $1.62 per share for the quarter, according to LSEG Data & Analytics.
Revenue totaled $8.36 billion, up from $8.07 billion in the same quarter last year.
Earlier in August, Scotiabank announced it would pay about US$2.8 billion for a 14.9% stake in U.S. bank KeyCorp in two stages.
Some analysts worry that Scotia will spend a lot of cash to buy more of the U.S. bank, but Chief Executive Officer Scott Thomson said Tuesday the deal is about getting more U.S. exposure at a good price.
“Our investment in KeyCorp represents a low-cost, low-risk approach to deploying capital in the U.S. banking market at a time when valuations are favorable and the regulatory and competitive environment is evolving,” he said.